Core & Main, Inc. (CNM) on Q1 2024 Results - Earnings Call Transcript
Operator: Good morning, everyone, and welcome to the Core & Main First Quarter 2023 Earnings Call. My name is Carla, and I will be coordinating your call today. [Operator Instructions] I will now hand you over to the management team to begin. Please go ahead. Robyn Bradbury: Thank you. Good morning, everyone. This is Robyn Bradbury, Vice President of Finance and Investor Relations for Core & Main. Core & Main is a leader in advancing reliable infrastructure with local service nationwide. We are thrilled to have you join us this morning for our first quarter earnings call. I am joined today by Steve LeClair, our Chief Executive Officer; and Mark Witkowski, our Chief Financial Officer. Steve will lead today's call with a business update, followed by an overview of our recent acquisitions. Mark will then discuss our first quarter financial results and full year outlook followed by a Q&A session. We will conclude the call with Steve's closing remarks. We issued our first quarter earnings release this morning and posted a presentation to the Investor Relations section of our website. As a reminder, our press release, presentation and the statements made during this call include forward-looking statements. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. Such risks and uncertainties include the factors set forth in our earnings press release and in our filings with the Securities and Exchange Commission. We will also discuss certain non-GAAP financial measures, which we believe are useful to assess the operating results of our business. A reconciliation of these measures can be found in our earnings press release and in the Appendix of our investor presentation. Thank you for your interest in Core & Main. I will now turn the call over to Chief Executive Officer, Steve LeClair. Stephen LeClair: Thanks, Robyn. Good morning, everyone. Thank you for joining us today. We're excited to share our results with you. Starting on Page 5 of the presentation, first quarter net sales finished in line with our expectations, reflecting a return to more typical seasonality for the first quarter. Our sales grew 25% in the first quarter of fiscal 2021 and another 52% in the first quarter of last year. This makes year-over-year comparisons tough, especially when confronted with disruptive weather in some of our major markets. We had an excellent quarter from a profitability standpoint, with adjusted EBITDA margin increasing 30 basis points year-over-year to a new first quarter record of 14%. Prices remained elevated against improving supply chains. And gross margins outperformed our expectations, offsetting lower sales volume and inflationary cost pressure to deliver a solid adjusted EBITDA outcome for the quarter. Our end markets remained stable throughout the first quarter. Nondiscretionary municipal repair and replacement demand continued to show resilience, backed by healthy municipal budgets and strong project backlogs. As we expected, residential volumes were down significantly compared to a strong prior year comparable. That said, we believe the long-term fundamentals of the housing industry are solid, and we are pleased with the level of demand we are seeing from our customers and many of the public homebuilders. Residential lot development is still in balance, representing a short supply of vacant developed lots. On the nonresidential side, onshoring trends have generated an increasing number of large projects, and our scale advantage has positioned us to capture meaningful growth from these projects in select markets. While we remain optimistic about the opportunities for growth in the nonresidential market, we recognize that tightening lending standards could have a short- to medium-term impact on nonresidential development, which could impact the demand for our products and services. During the quarter, we made significant strides in executing the capital allocation framework we've laid out in prior quarters. In the first quarter, we deployed over $400 million of capital to organic growth, acquisitions and share repurchases. And we maintained ample capacity to continue investing in growth opportunities. We continue to invest in resources to support the growth of our product, customer and geographic expansion initiatives, which helped drive market outperformance and long-term value creation. For example, we opened 2 new locations in underserved markets during the first quarter to grow our footprint and make our products and expertise more accessible nationwide. Our greenfields continue to mature and offer new growth opportunities. We have the ability to efficiently open new branches in attractive markets due to our scale advantage, talent pool and training programs. We are pleased with the progress we've made across these initiatives as we entered the busiest time of our selling season. We complement our organic growth investments with acquisitions to broaden our geographic footprint, enhance our product lines, enter adjacent markets and acquire key talent. We completed 3 acquisitions during the quarter and signed a definitive agreement to acquire another business subsequent to the quarter. Our M&A pipeline remains very active, and we expect to continue adding new businesses to the Core & Main family throughout 2023 and beyond. Our record first quarter operating cash flow also contributed to the liquidity to fund a $332 million share repurchase from a majority shareholder, which was concurrent with a 5 million share secondary offering. The share repurchase reduced our diluted share count by 15 million shares. Looking ahead, organic and inorganic growth investments remain our #1 capital allocation priority, but we will look to return capital to shareholders as opportunities arise. Turning to our recent acquisitions on Page 6. We added 3 high-performing businesses to our family and, subsequent to the quarter, signed a fourth, generating combined historical annualized net sales of over $115 million. Landscape & Construction Supplies is a full-service provider of geosynthetics products with 2 locations in the Chicago Metropolitan area. Since opening nearly 20 years ago, the team at LCS has built a well-regarded business and serves customers in more than 15 states. The acquisition adds key talent and expands our existing geosynthetics and erosion control product offering to our customers in the Upper Midwest. UPSCO is a provider of utility infrastructure products and services headquartered in the Finger Lakes region of New York with sales offices in the Northeast, Mid-Atlantic and Midwest regions of the U.S. Since 1965, UPSCO has earned a trusted reputation for providing its customers with best-in-class products and services to build and remediate utility infrastructure. In addition to prefabricated meter sets, they offer a broad range of products and services, including pipe, valves, fittings and fusible piping solutions to satisfy the needs of its customers. This acquisition brings us adjacent product lines and unique cross-selling opportunities to our existing customer base, thereby expanding the addressable market for our products and services. The team at UPSCO shares our commitment to providing high-quality products and service for reliable utility infrastructure, and we are excited to have them join our business. Midwest Pipe Supply is a single branch, full-service distributor of storm drainage and water products in Northern Iowa. Since 2002, the team at Midwest Pipe Supply has built a strong reputation as a dependable distributor of drainage, septic and water works solutions. The company offers a wide range of products and services for contractors, municipalities and agriculture customers throughout the state. This acquisition expands our product offering and geographic reach in the Midwest, alongside a team with commitment and dedication to the communities they serve. Foster Supply is a leading producer, installer and distributor of specialty precast concrete products, storm drains and other erosion control solutions, operating out of 7 locations across Kentucky, Tennessee and West Virginia. Since 1981, the team at Foster Supply has been the partner of choice for contractors and municipalities seeking innovative solutions for unique work site challenges. Bringing that team to Core & Main will allow us to combine our collective expertise and differentiated product and service offerings to better meet the needs of our shared Water Works and geosynthetics customers. Lastly, I want to share that I'm extremely proud to see our vision of advancing reliable infrastructure realized through the achievement of our growth strategies. Our strategy is to leverage the scale, resources, talent and capabilities we have as one of the largest companies in our industry, all in our support of experience and entrepreneurial local teams to consistently deliver value to our customers and suppliers. We've come a long way in building the foundation for Core & Main and executing our strategy, and we have a significant runway of growth opportunities ahead. Now I'll turn the call over to our Chief Financial Officer, Mark Witkowski, to discuss our financial results and fiscal 2023 outlook. Go ahead, Mark. Mark Witkowski: Thanks, Steve. I'll begin on Page 8 with highlights of our first quarter results. We reported net sales of nearly $1.6 billion for the quarter, a decrease of 1.5% compared with the prior year period. The slight year-over-year sales decline was expected and follows strong comparative performance in the prior year when net sales grew 52% compared with the first quarter of fiscal 2021. We saw positive price contribution during the quarter as material costs have sustained at elevated levels, and we experienced pressure on volumes due to a return to more typical seasonality for the first quarter. We have since seen demand improve in the second half of April and into May, with dryer and more stable weather conditions across the country. Gross margins of 27.9% was 160 basis points higher than the prior year period and reflects the benefit of accretive acquisitions, execution of our margin enhancement initiatives and the utilization of low-cost inventory. Despite the strong start to gross margins in the first quarter, we continue to expect gross margin for the full year to be lower than fiscal 2022, but likely stronger than we anticipated at the beginning of the year. Selling, general and administrative expenses increased 8.3% to $223 million for the first quarter. The increase in SG&A reflects the impact of cost inflation, acquisitions and investments to support our anticipated growth. SG&A as a percentage of net sales increased 130 basis points to 14.2%. Our SG&A as a percentage of net sales is typically higher in the first quarter due to seasonality of our sales and fixed cost structure. Interest expense was $17 million for the first quarter compared with $13 million in the prior year period. The increase was due to higher variable interest rates on the unhedged portion of our senior term loan. Income tax expense for the first quarter was $31 million compared with $30 million in the prior year period, reflecting effective tax rates of 18.9% and 18%, respectively. The increase in effective tax rate was due to an increase in income attributable to Core & Main, Inc., resulting from a decline in partnership interest held by noncontrolling interest holders. We recorded $133 million of net income for the first quarter compared with $137 million in the prior year period. The decrease was primarily due to lower sales volume, higher SG&A expenses and higher interest expenses, partially offset by favorable gross margin performance. Diluted earnings per share in the first quarter was in line with the prior year period at $0.50 per share. The diluted earnings per share calculation includes the basic weighted average shares of Class A common stock, plus the dilutive impact of outstanding Class A common stock that would be issued upon exchange of partnership interest. Adjusted EBITDA increased nearly 1% to $220 million, and adjusted EBITDA margin increased 30 basis points to 14%. The increase in adjusted EBITDA margin was due to our strong gross margin performance during the quarter, partially offset by the impact of cost inflation and investments to support our growth. Turning to our cash flow and balance sheet performance on Page 9. Operating cash flow was a record for the first quarter at $120 million. We continued the inventory optimization initiative we started in the middle of last year, generating $35 million of cash from inventory in the first quarter compared with a $207 million investment in the prior year. We typically build inventory in the first and second quarter to prepare for our spring and summer selling seasons. However, we were able to reduce inventory this year while maintaining service levels with our customers due to our prudent inventory investments in the prior year. On a year-over-year basis, net inventory was down about 2% in the first quarter, even with the higher product costs, inventory acquired through acquisitions and new inventory to support our greenfields. As I mentioned last quarter, we are targeting an operating cash conversion range of 80% to 100% of adjusted EBITDA, and we expect continued improvement in cash flows as we progress throughout the year. Net debt leverage at the end of the quarter was 1.7x, and our available liquidity stands at $1.1 billion following the capital deployment actions we took during the quarter. The $332 million share repurchase we executed during the quarter was done concurrently with a public secondary offering of 5 million shares by our majority shareholder. As a result of the repurchase, we reduced our diluted share count by 15 million shares. Our capital allocation framework remains consistent with what we laid out last quarter. Organic and inorganic growth investments remain our #1 capital allocation priority, and we intend to continue returning capital to shareholders through share repurchases or dividends. We have ample capacity to invest, and we remain confident in our ability to capture growth opportunities as they develop throughout the year. I'll wrap up on Page 10 with an update on our outlook for the remainder of 2023. We expect end-market volumes to remain stable for the rest of the year. We expect lot development for new residential construction to be down on a year-over-year basis, but the sentiment and level of demand from our customers and public homebuilders has improved since last quarter. We continue to expect growth in nondiscretionary municipal repair and replacement activity and a relatively stable nonresidential end markets supported by a diverse project exposure. In total, we continue to expect end market volumes to be down in the low to mid-single-digit range for the year. We expect to deliver 2 to 3 points of above-market growth from the execution of our product, customer and geographic expansion initiatives. In terms of acquisitions, we've seen an acceleration of activity in recent months, and we look forward to adding more high-quality companies to the Core & Main family in 2023. We now expect roughly 4 points of sales growth from acquisitions that have signed or closed within the last 12 months. Our acquisitions are performing well, and we continue to improve our ability to integrate them into our company. We've seen price inflation continue to moderate as we lapse the price increases from a year ago, and we continue to expect roughly flat price contribution for the full year. We still expect gross margins to normalize in fiscal 2023, but the impact is likely to be better than we anticipated last quarter as a result of our continued utilization of low-cost inventory. Given our recent acquisitions and strong margin performance in the first quarter, we are raising our expectations for fiscal 2023 net sales and adjusted EBITDA. We now expect net sales to be in the range of $6.6 billion to $6.9 billion, and we expect adjusted EBITDA to be in the range of $820 million to $880 million. Our expectation for operating cash conversion remains unchanged at 80% to 100% of adjusted EBITDA. As we progress throughout the year, we will continue to focus on organic and inorganic growth opportunities, margin expansion and operating cash conversion through inventory optimization. We are well positioned to outperform the market in this complex demand environment, creating value for all our stakeholders. We look forward to helping our customers build more reliable infrastructure as we enter a key part of the construction season. At this time, I'd like to open it up for questions. Operator: [Operator Instructions] Our first question comes from Kathryn Thompson from Thompson Research Group. Kathryn Thompson: Just first a bigger picture question before I get to -- more to the quarter. We looked at several federally funded initiatives, IIJA, CHIPS Act and the Inflation Reduction Act. How does Core & Main participate in those? And really in short, how do they win with those dollars as they flow through? Stephen LeClair: Thanks, Kathryn. This is Steve. A couple of different areas I would share with you. Certainly, the projects themselves have a lot of opportunity for us, whether it's the new chip facilities that are going in, battery facilities. A lot of this onshoring activity that has been part of that in addition to the infrastructure piece itself all benefit us. But what I would also share is that just given our size and scale, we've been able to support a lot of these major contractors that are involved with these across multiple geographies. We've been able to help assist in getting product access that, in some cases, may still be in short supply or being utilized in other parts of the country. So as we've continued to work with a lot of these larger projects and these larger contracts, we continue to find ways to utilize size and scale to get our own unfair share of business in those areas. Kathryn Thompson: Okay. And maybe digging a little bit deeper to pipe, valves and fittings and fire protection that saw modest declines in the quarter. Pipe sales and fittings, I assume was more driven by resi. Could you give more clarity on that? And then just a little bit more color on the modest softness in the fire protection segment. Stephen LeClair: Yes. Well, I'll start first with residential. So we anticipated a challenging residential quarter here, particularly given some of the softening that we've seen with the new land development as homebuilders have been scaling back. That certainly was anticipated as we got into the quarter. And certainly, from the beginning to the end, we saw what I'd call a slightly change in sentiment more positive as we exited Q1. But we're also going up against pretty difficult comps from last year. As you saw, we were up 52% last year. So we were certainly seeing some challenges there. As far as fire protection, some of the other areas, we did see some softness in a couple of different areas across the country. Weather and seasonality were also part of the impact that we saw. It's difficult to put our finger exactly on how much was parceled out between the typical seasonality, which returned last year in weather. We certainly were impacted in California and other areas with extraordinarily wet weather that impacted all the underground work. And then even in the northern areas where seasonality returned, it was a pretty tough winter in some of those areas and pushed a lot of things into later in the spring. Operator: Our next question comes from Michael Dahl from RBC Capital Market. Michael Dahl: I wanted to start off on capital allocation. Obviously, a lot of moving pieces in the quarter with a nice buyback, but then the comments that you made just now about the accelerating M&A activity. Can you help us understand kind of what's -- what do you think is driving the acceleration and some of the deals in the pipeline? It sounds like maybe progressing along better than you might have anticipated. And when you think about kind of the contribution, I think you outlined 4 points. Just to be clear, is that -- because that's a little higher than I would have thought based on the deals you've already closed. So is that inclusive of any contribution from deals that you're still contemplating and expecting to close? Stephen LeClair: Well, I'll talk a little bit about what we delivered in terms of M&A in the first quarter. So as you saw there, we had close to 11 branches and $115 million in annualized sales that came through in that quarter. Our pipeline continues to be very robust. You saw last year, we had a number of really solid bolt-on acquisitions for Water Works. We're continuing to see those increase as well too with Midwest Pipe Supply. And then as you get into some of our other product categories, we get into geosynthetics and erosion control. We've been able to tie in a number of different acquisition targets in that space as well, too. So we're seeing a lot of opportunity there. The multiples have been very favorable for us as we've gone through this, and we continue to see a very robust pipeline. And I can let Mark talk a little bit more about the capital allocation and how we've been prioritizing. Mark Witkowski: Yes, Michael, thanks for the question. On the capital allocation, again, no change from what we described last quarter in terms of the priorities. Organic growth, inorganic growth being our top priorities, and then I think the repurchase that we completed during the quarter really represented our commitment to the capital deployment back to shareholders. And you can expect that we'll continue along that path of capital allocation priorities that we've laid out. In terms of your question on the guide, we do have 4 points of acquisitions embedded in there, which includes the addition of UPSCO, Midwest Pipe and Foster for the remaining parts of 2023. So no contemplation of acquisitions that have not been signed, and that's all acquisitions that have been completed at this point. Michael Dahl: Okay, that's very helpful. And my follow-up is also around capital allocation. So if we look at the balance sheet and the cash flow that you're guiding to for the year, it seems like you'd probably end up, all else equal, close to 1 -- like in the net leverage range in the low 1s or around 1x. So relative to your target range, I think that gives you a full turn or more of leverage, which is technically kind of like $850 million of available dry powder this year based on your EBITDA guide. So is that -- in terms of kind of order of magnitude on what you think you can deploy this year between M&A and potentially incremental buybacks, is that the right way to think about it? Or would you be thinking about kind of a more gradual layering in of deployment? Mark Witkowski: Yes, Michael, I think that's the right way to think about it over a period of time. The timing of it, we'll continue to assess the timing of cash flows this year, where that leverage level shakes out and liquidity as we think about deploying that capital. But that's how we feel the 2 to 3x leverage is a comfortable level for us. And yes, that provides for a decent amount of capital that we'll look to deploy again through our organic and inorganic initiatives, and potentially additional share repurchases and/or dividends. Operator: Our next question comes from Joe Ritchie from Goldman Sachs. Joseph Ritchie: So I was wondering if you can maybe start by giving us just a little bit more color on your organic growth this quarter. So specifically, like any kind of like order of magnitude on the different end markets and how they contributed to the quarter from a volume standpoint. And also curious, I know that pricing is expected to be flat for the year, but curious how pricing started out in the first quarter. Mark Witkowski: Yes. Thanks, Joe. Yes, in terms of the sales breakdown for the quarter, I'd say from a price standpoint, we were in the, I'd say, single-digit range for the quarter. Definitely, much less of an impact than what we saw in the prior years as we've seen some of that pricing stabilize. And then from a volume perspective, kind of low double-digit range there with the bigger impacts, obviously, in the residential end market given the softness there and the really tough comps, in particular in the residential market in the prior year. And I'd say from a volume perspective, down to a lesser extent in non-resi and muni that was primarily due to the return to the typical seasonality that we talked about and some of the weather impact. So I wouldn't necessarily call that market necessarily, but were the drivers of the softer volume in the quarter. Joseph Ritchie: Okay. That's super helpful. And I guess, maybe just my follow-on question to that is, clearly, like we've been waiting now for a while for some of this infrastructure spending to come through. We got through the debt ceiling. I'm just curious like on the muni side specifically, what are you seeing, what are you hearing from your customers? I know that, clearly, you mentioned that things seem to have gotten a little bit better in the second half of April and into early May. Was that predominantly muni-driven? Just any color around that would be helpful. Stephen LeClair: Sure. I think municipal piece has been incredibly resilient as we've gone through this period. Municipal budgets have been strong. The projects have been flowing. We certainly had some seasonality and some weather that hampered a few things in the first quarter, but continue to be really encouraged by what we're seeing in bid activity with municipal piece. From the IIJA perspective, we're seeing a trickle of funds starting to make its way into projects. We've seen some in Florida, another one in Arizona that's been allocated. So still slower than what we would anticipate. But we also know that it is starting to make its way through and certainly starting to see some of those positive ramifications and green shoots coming through. Joseph Ritchie: That's great to hear, Steve. If I could maybe just ask one more. I was just looking at your adjusted EBITDA margin guide for the year, the 12.4% to 12.8%. Clearly, you're off to a much better start in 1Q at 14%. So like how do we think about the rest of the year? Because it seems like this number looks -- at least from our -- in a high level, it looks very conservative. What are kind of some of the offsets as you progress through the next 3 quarters? Mark Witkowski: Yes. I think as you look at the guide in terms of what was embedded for us, obviously we had the surprise of the additional gross margin from some of the releases, some low-cost inventory in the quarter. As we talked about it at year-end, we do expect normalization at some point at the gross margin level as we progress throughout the year. I'd say we still have some low-cost inventory to release, even though we did make some progress on that in the quarter. But I think a little too early yet for us to revise the gross margin normalization that we're expecting, which was in the 100 to 150 basis point range. But I'd say that's the primary driver of that EBITDA margin reset that we've talked about. Operator: Our next question comes from Anthony Pettinari from Citigroup. Asher Sohnen: This is Asher Sohnen on for Anthony. Just looking at -- following up on the last one, the increase to your EBITDA guide, it seems to be driven not only in part by more low-cost inventory than expected. So is that just a function of you moving through inventory or may be slower than expected with volume pressure, or maybe pricing has been strong enough to make more of your inventory sit into sort of the low-cost basis bucket, or maybe you're even able to continue doing some prebuys? So what's driving that? Mark Witkowski: Asher, good question. And I think the answer to that is really all the items that you mentioned there. I mean, we did take us longer to get inventory through the system in Q1 just given some of the softness in volume. So we are hanging on to some of that longer than anticipated. It's also given us an opportunity to invest in other product categories that we've continued to see some price come through. So those have been some of the factors. And then I'd say beyond that, we are continuing to make progress against our gross margin initiatives, in particular private label and some of the other pricing initiatives that we've got. So I think the -- what you'll see is the longer it takes us to kind of release some of that inventory, we have more of an opportunity to offset some of that reset that we have. But again, I just think a little too early for us to adjust the normalization that we've been expecting, that gross margin level. Asher Sohnen: Okay, that's helpful. And then just sort of switching gears. In your prepared remarks, I think you talked about sort of the risk presented to kind of the commercial private non-res segment from credit tightening. But I'm just wondering even anecdotally, have you actually seen the impact kind of come through on that? Are you seeing maybe projects get delayed or still at the start or something like that? Stephen LeClair: As of the end of first quarter, we really haven't seen much impact at all from the credit challenges that -- or perceived credit challenges that have been out there. And if you look at the projects that we have, we have a really diverse mix of project types in nonresidential. Everything from commercial and institution buildings, data centers, warehouses, and we talked a little bit about these large projects and the onshoring trends that have happened, all of those have been favorable for us, and we've continued to see volume and bid activity there. In addition to just the $110 billion of federal infrastructure funding that's been earmarked for roads and bridges, we view that as a tailwind, particularly as we look at projects that contain storm drainage and erosion control products. So we're watching closely to make sure we understand a little bit what's happening here in terms of the lending aspect of this. But so far, we've not seen it. Operator: Our next question comes from Andrew Obin from Bank of America. David Ridley-Lane: This is David Ridley-Lane on for Andrew. Can you maybe help bridge the change in the adjusted EBITDA guidance for this fiscal year? How much of it was the first quarter outperformance versus additional acquisitions versus the gross margin here being better than you had feared? Mark Witkowski: Yes, David, thank for the question. As you look at the adjustment to the guidance for the full year, I'd say we took it up at the midpoint. It was about $25 million. Half of that was primarily the better-than-expected gross margins that we had in the quarter. The remainder of it would be EBITDA related to acquisitions that we added that were not included in the prior guide. David Ridley-Lane: And then how much of the -- because I know you have a couple of different initiatives internally to improve gross margin. And so I'm just sort of wondering, what was the kind of underlying progress versus kind of another benefit from just the sell-through of the lower cost inventory? Mark Witkowski: Yes. David, if you're looking at it year-over-year, I'd say that from a gross margin standpoint, still a lot of release of inventory in there, but a good chunk of benefit coming through from private label and some of the other gross margin initiatives, in particular, some of the pricing initiatives that we put in place. I'd say if you look at it sequentially from Q4 to Q1, still had some nice improvement over Q4 number. And I'd say most of that was the release of low-cost inventory. Hard to make a lot of progress on some of those initiatives in just a quarter, but still had some nice releases of that low-cost inventory. So those are, I'd say, the primary components of that. Operator: We have no further questions. I will now hand back to your host for any further remarks. Please go ahead. Stephen LeClair: Thank you all again for joining us today. It was a pleasure to have you on the call. Our consistently strong performance quarter-after-quarter is a direct result of the hard work of our field and functional support teams, our focus on operational discipline and the diversity of our products and end markets. We are well positioned to build on our positive momentum, and we have a strong outlook for fiscal 2023. Our platform provides for significant value creation opportunity as our growth strategy is grounded in agility, innovation and execution. We have a tremendous amount of opportunity ahead of us, and we are well positioned to execute on those opportunities. Thank you for your interest in Core & Main. Operator, that concludes our call. Operator: Thank you. This concludes today's call. Thank you for joining. You may now disconnect your lines. Have a great day.
Core & Main Posts In Line Q1 Earnings, But Margins and Guidance Weigh on Shares
Core & Main (NYSE:CNM) posted first-quarter earnings that matched expectations and revenue that came in ahead of forecasts, yet the stock slipped over 2% intra-day today as investors reacted to tighter margins and an unchanged full-year outlook.
The company reported adjusted earnings per share of $0.52 for the quarter, aligning with analyst projections. Revenue rose nearly 10% year-over-year to $1.91 billion, topping the $1.85 billion consensus estimate, driven by robust demand across its core markets.
Gross profit climbed to $510 million, up 9% from the prior year, but gross margin edged down to 26.7% from 26.9%. The company attributed the margin contraction to higher average inventory costs, despite ongoing efforts to enhance profitability.
Looking ahead, Core & Main reaffirmed its fiscal 2025 net sales guidance of $7.6 billion to $7.8 billion, implying modest annual growth of 2% to 5%.
Despite healthy top-line growth, investors appeared cautious about margin pressures and a guidance range that suggests tempered optimism in the face of rising costs.
Core & Main, Inc. (NYSE:CNM) Showcases Strong Financial Performance
- Core & Main, Inc. (NYSE:CNM) reported an EPS of $0.52, meeting the Zacks Consensus Estimate and indicating profitability growth.
- The company's revenue reached approximately $1.91 billion, surpassing estimates and reflecting robust sales performance.
- CNM's financial metrics, including a P/E ratio of 26.58 and a debt-to-equity ratio of 1.48, highlight its market valuation, operational efficiency, and financial stability.
Core & Main, Inc. (NYSE:CNM) is a leading distributor of water, wastewater, storm drainage, and fire protection products in the United States. The company operates in a competitive market, with key players like Ferguson and HD Supply. CNM's recent financial performance showcases its strong market position and effective strategies.
On June 10, 2025, CNM reported earnings per share (EPS) of $0.52, aligning with the Zacks Consensus Estimate. This marks an improvement from the previous year's EPS of $0.49, indicating growth in profitability. The company's revenue reached approximately $1.91 billion, surpassing the estimated $1.85 billion, reflecting its robust sales performance.
CNM's financial metrics provide insights into its market valuation and operational efficiency. With a price-to-earnings (P/E) ratio of 26.58, the market values CNM's earnings positively. The price-to-sales ratio of 1.46 suggests investors are willing to pay $1.46 for every dollar of sales, indicating confidence in the company's revenue generation.
The enterprise value to sales ratio of 1.80 and the enterprise value to operating cash flow ratio of 21.55 highlight CNM's overall valuation compared to its sales and cash flow. These figures suggest a strong market position and efficient cash flow management. The earnings yield of 3.76% offers a perspective on the return on investment for shareholders.
CNM's debt-to-equity ratio of 1.48 indicates a balanced use of debt in its capital structure, while a current ratio of 2.34 shows its ability to cover short-term liabilities with short-term assets. These metrics reflect CNM's financial stability and strategic financial management, contributing to its impressive performance in Q1 2025.
Core & Main, Inc. (NYSE:CNM) Receives "Outperform" Rating from RBC Capital
- RBC Capital upgrades Core & Main, Inc. (NYSE:CNM) to "Outperform," signaling confidence in its future market performance.
- Anticipated Q1 earnings of 54 cents per share on revenue of $1.85 billion, indicating positive year-over-year growth.
- Despite a slight miss in Q4 earnings, CNM's stock demonstrates resilience with a market capitalization of approximately $11.24 billion.
Core & Main, Inc. (NYSE:CNM) is a leading distributor of water, wastewater, storm drainage, and fire protection products in the United States. The company serves municipalities, private water companies, and professional contractors. CNM operates in a competitive market, with key competitors including Ferguson PLC and HD Supply Holdings.
On June 10, 2025, RBC Capital updated its rating for CNM to "Outperform," indicating confidence in the company's future performance. At the time of this announcement, CNM's stock price was $59.33. This rating suggests that RBC Capital expects CNM to perform better than the overall market or its sector peers.
CNM is set to release its first-quarter financial results on June 10, with analysts expecting earnings of 54 cents per share. This is an increase from 49 cents per share in the same period last year. The anticipated revenue is $1.85 billion, up from $1.74 billion a year ago, reflecting positive growth expectations.
Previously, on March 25, CNM reported fourth-quarter earnings of 33 cents per share, which fell short of the consensus estimate of 36 cents. This led to a slight decline in CNM's share price by 0.6%, closing at $59.33. Despite this, the stock has shown resilience, trading between $59.10 and $60.32 today.
CNM's market capitalization is approximately $11.24 billion, indicating its significant presence in the market. The stock has traded a volume of 4,977,844 shares on the NYSE. Over the past year, CNM has reached a high of $60.38 and a low of $37.22, showcasing its volatility and potential for growth.
Core & Main, Inc. (NYSE:CNM) Quarterly Earnings Preview
Core & Main, Inc. (NYSE:CNM) is preparing to release its quarterly earnings on June 10, 2025. Analysts predict an earnings per share (EPS) of $0.52 and project the company's revenue to be around $1.85 billion. This announcement is crucial for investors and stakeholders eager to gauge the company's financial health and strategic direction.
CNM's financial metrics provide a deeper understanding of its market position. With a price-to-earnings (P/E) ratio of 27.6, investors are willing to pay $27.60 for every dollar of earnings. This ratio helps investors assess whether the stock is overvalued or undervalued compared to its earnings.
The company's price-to-sales ratio is 1.52, meaning investors pay $1.52 for every dollar of sales. This ratio is useful for evaluating the company's revenue generation relative to its stock price. Additionally, the enterprise value to sales ratio of 1.85 reflects CNM's total valuation compared to its sales, offering insight into its overall market value.
CNM's enterprise value to operating cash flow ratio stands at 22.22, indicating how many times the operating cash flow can cover the enterprise value. This ratio helps assess the company's ability to generate cash flow relative to its valuation. The earnings yield of 3.62% shows the percentage of each dollar invested that was earned by the company, providing a measure of profitability.
The debt-to-equity ratio of 1.48 highlights the proportion of debt used to finance CNM's assets relative to shareholders' equity. This ratio is important for understanding the company's financial leverage. Lastly, a current ratio of 2.34 indicates CNM's ability to cover short-term liabilities with short-term assets, reflecting its liquidity position.
Core & Main Reports Q4 Profit Miss, But 2025 Outlook Signals Rebound
Core & Main (NYSE:CNM) reported fourth-quarter earnings, which came in below expectations, even as revenue slightly exceeded forecasts and the full-year outlook pointed to continued growth.
The water infrastructure specialist posted earnings per share of $0.33, falling short of analysts’ estimate of $0.36. Quarterly revenue rose 17.9% year-over-year to $1.69 billion, narrowly beating the $1.68 billion consensus. Meanwhile, adjusted EBITDA totaled $179 million, just under the projected $179.5 million.
Despite the earnings miss, Core & Main emphasized strong execution, noting its 15th consecutive year of positive sales growth. Management expects flat to slightly positive demand in 2025, with gradual strength in municipal repair and replacement projects.
Looking ahead, the company is guiding for fiscal 2025 revenue between $7.6 billion and $7.8 billion, above analyst expectations of $7.42 billion. Net sales growth is projected at 2% to 5%, with average daily sales expected to rise 4% to 7%.
Core & Main Reports Q4 Profit Miss, But 2025 Outlook Signals Rebound
Core & Main (NYSE:CNM) reported fourth-quarter earnings, which came in below expectations, even as revenue slightly exceeded forecasts and the full-year outlook pointed to continued growth.
The water infrastructure specialist posted earnings per share of $0.33, falling short of analysts’ estimate of $0.36. Quarterly revenue rose 17.9% year-over-year to $1.69 billion, narrowly beating the $1.68 billion consensus. Meanwhile, adjusted EBITDA totaled $179 million, just under the projected $179.5 million.
Despite the earnings miss, Core & Main emphasized strong execution, noting its 15th consecutive year of positive sales growth. Management expects flat to slightly positive demand in 2025, with gradual strength in municipal repair and replacement projects.
Looking ahead, the company is guiding for fiscal 2025 revenue between $7.6 billion and $7.8 billion, above analyst expectations of $7.42 billion. Net sales growth is projected at 2% to 5%, with average daily sales expected to rise 4% to 7%.
Core & Main’s Price Target Raised Following Q1 Results
Core & Main, Inc (NYSE:CNM) reported its Q1 results last week, with EPS of $0.31 coming in slightly worse than the Street estimate of $0.32. Revenue of $1.37 billion was in line with expectations. Shares have gained more than 7% since then.
According to Deutsche Bank analysts, pricing grew in low-double-digit percentage, and along with an M&A benefit, more than offset a 5% volume decline against a difficult prior year comp.
Price outperformance again drove stronger gross margins than anticipated, although the company continues to expect 100-150bps of benefit to prove temporary as higher-cost inventory flows through and aligns with current pricing.
With a leveling off of pricing largely complete by now, the analysts do expect to see the gross margin reset begin to flow through most prominently starting in Q2 and into Q3. The analysts raised their price target to $42 from $40 while maintaining their Buy rating.
